A term insurance calculator is an online application that allows you to calculate the amount of coverage required based on your needs. The calculator is simple to use and can be extremely useful when purchasing a term insurance plan or rather any insurance policy. All you need to do is enter a few parameters and the calculator then determines how much coverage you need to adequately safeguard your family. It also recommends the best policies available from various insurance providers.
How To Use the Term Insurance Calculator?
As stated before, the online term insurance calculator is simple to use and the result is based on the following parameters such as:
Your age: Your current age as per the Aadhaar, PAN, and so on.
Desired retirement age: While 60 is typically regarded as the retirement age for paid employees, you may choose to retire sooner or later depending on your life goals.
Existing Life Coverage: If you currently have a term insurance policy in place, the term insurance calculator can help you determine how much more life protection you require.
Annual Income: Using your annual income, the calculator can predict how much money your loved ones and dependents may require in case of your unfortunate death within the tenure.
Existing Loan Details: To better understand your current responsibilities, add information on any outstanding home loans and other loan EMIs that you pay each month. The loan amount reflects your existing outstanding liabilities.
Current Savings: If you have considerable savings, it is more likely that your dependents will be financially secure in the event of your untimely death. So, the calculator considers your present savings before determining how much life insurance you may require.
Using the data you provided above, the calculator will provide the following result:
Insurance Cover: This is the anticipated total or additional life insurance coverage required based on your present income, responsibility, age, and expected retirement age.
Along with the life coverage data, you will receive a limited number of term insurance policies from renowned insurers, as well as the yearly premium payment required for each plan.
Using a term insurance calculator to estimate your insurance needs
Term insurance is intended to provide the maximum financial support for your family in the event of your untimely death. As a result, the death benefit amount of your term plan should match what you will contribute to your family’s life. Since this payment is a direct outcome of your financial worth, the amount guaranteed by your term plan should be equivalent to your financial worth. So, when we use a term insurance calculator to evaluate our term insurance needs, we should have a good understanding of our current financial situation.
Let us find out.
- What Will Your Family Need During Your Absence?
- Monthly Kitchen and Household Expenses
- Money to cover children’s higher education and marriage expenses ● A corpus for your spouse’s post-retirement existence
Monthly household costs: The first item you should budget for is the family’s monthly household expenses. Term insurance should provide the family with a monthly income or enough money to cover their monthly household budget. For example, if your current monthly household expense is Rs. Rs. 600,000. You will need to increase your term insurance death benefit by around Rs. 1 crore (maximum). This will allow your dependents to live their lives without worrying about their money.
Money for Retirement and Children’s Goals: In our scenario, we have already budgeted for the spouse’s post-retirement expenses in the monthly household expense. That’s because we expected the household to run forever. However, the majority of it will most likely come to an end over the next 20-30 years. Thus, the reduced household budget would eventually equalize with the remaining corpus and serve as a retirement buffer.
Estimating the cost of the goals is simple since one can just take the current costs. Higher education at top domestic colleges, for example, might cost between Rs. 10 and 15 lakhs. Add a similar sum for marriage, and you’ll have an additional Rs. 25-30 lakh. If you have two children, simply double the amount to Rs 50-60 lakh.
How Does the Term Insurance Calculator Work?
Term insurance calculators work on an approximate basis. The general thumb rule in the insurance industry is,
’10 to 20 times of annual take-home income is sufficient to cover the dependents’ expenses.’
As a result, most term insurance calculators only ask for your present age and annual income. As per our example, XYZ’s annual income may range between Rs. 12 and 15 lakh. (That means that 50% of his or her monthly salary goes to home expenses.) Thus, according to an online term insurance calculator, this individual current financial worth ranges between Rs. 1.2 crore and 1.5 crore.
Now, this estimate is rather close to the one we obtained through the full ‘need analysis’. So, we can conclude that the term insurance calculator provides a reasonably good indication of your financial value today,’ if not the most accurate.
Choosing the Best Term Insurance Plan
After you’ve estimated your financial worth, you can consider the additional features and benefits to determine the best term insurance for your family.
Premium payment mode: If you work for a pay cheque, the monthly mode is the most convenient option you have. The nominal premium can be debited immediately from your account.
Whole life Coverage: If you want to use your term plan to leave an estate for your children or grandchildren, a whole life term plan can help.
Option to increase the coverage: If you were one of the first to purchase term insurance, you should expect your obligations to increase as your family and responsibilities expand. As a result, a term plan that allows you to take advantage of this opportunity without going through the entire underwriting procedure is preferable.
If you choose a long-term policy with a limited pay option, you will not be required to pay premiums after retirement.
So don’t risk your family’s financial safety. Use the term insurance calculator to determine your financial worth and purchase the necessary life insurance coverage for your family.
